Management 104 report

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MANAGEMENT 104

CHAPER 6Corporation Governance and

Anti – Corruption in Global Business

Presented By: Mae Casumpang Aizell Bernal Magiel Amora Mara Marielle BanezJerelyn BarrogoJecelyn BarrogoJasmin Khaye Aquino

Coverage of Chapter 5

I. 6.5 Corporate Governance and Anti- Corruption – maeII. 6.2 Corruption Practices and Properties- AizelIII. 6.3 Taxonomy of Corruption in International Business. – MagielIV. 6.4 Corruption and Organizational Environment – KhayeV. 6.4.1 Task Environment - khayeVI. 6.4.2 Institutional Environment – khayeVII. 6.5 Corruption and Organizational Behavior- jerzVIII. 6.5.1 System Malfeasance – jerzIX. 6.52 Procedural Malfeasance –jerzX. 6.5.3 Categoral Malfeasance- jerzXI. 6.5.4 Structural malfeasance- jerzXII. 6.6 Corruption and Organizational Consequences- MaraXIII. 6.6.1 Evolutionary hazard – maraXIV. 6.6.2 Strategic impediment – manaXV. 6.6.3 Competitive disadvantage – maraXVI. 6.6.4 Organizational Defficiiency- mara

Coverage of Chapter 5 I. 6.5.4 Structural malfeasance- jerzII. 6.6 Corruption and Organizational Consequences- MaraIII. 6.6.1 Evolutionary hazard – maraIV. 6.6.2 Strategic impediment – manaV. 6.6.3 Competitive disadvantage – maraVI. 6.6.4 Organizational Defficiiency- maraVII. 6.7 Corruption and Organizational Architecture – jesVIII. 6.7.1 Corporate CultureIX. 6.7.2 Organizational StructureX. 6.7.3 Compliance System XI. 6.7.3.1 Conduct CodeXII. 6.7.3.2 Compliance Program

6.1 The Corporate Governance and Anti- Corruption

Corruption

• has drawn the enormous attention of executives, directors, legislators, politicians, and scholars around the world.• Recent obstacles of many well known companies.

Anti- corruption

• Crucial to corporate governance, because bribery and corruption damage the Governance of corporation .

• Impede efforts to develop corporate integrity.

• any illicit behavior, conducted by executives, managers, and employees can fundamentally deter the legitimate and long term interest of internal and external stake holders.


In the international business context, anti- corruption becomes even more importantTo global corporate governance because MNCs confront significantly varying norms, laws, and standards pertaining to business practices in general and corruption practices in particular.

To cope increasingly stringent anti- corruption law and to enhance the effectiveness and transparency of global corporate governance, MNCs are voluntarily disclosing potential violations of federal anti – corruption law.


Surely it is true that the Anti – corruption necessities efforts and commitments from various institution, especially legislators, regulators and government official.

Transparency – the key in private and public domain to fight against bribery and extortion.

Cooperation to strengthen public support to fight against Anti-corruption measures.

Adoption of proper Corporate Governance practices is complimentary element in Fostering a culture of ethics within the multinational enterprise.


Business organization has an inescapable liability from such effort and commitments :

I. Organization is a basic unit of corruption practice.II. Organization that are motivated to bribe for transaction-

specific gain are partly responsible why corruption is difficult to eradicate.

III. Organization is a window through which to see Nation corruption climate.

IV. Knowing organizational implication of corruption is imperative.


Anti- corruption is critical to corporate accountability.

The foreign Corrupt practices Act ( FCPA) – clearly states the importance of Anti- corruption in fortifying MNCs global corporate governance and accountability.

6.2 Corruption Practices and Properties

Corruption is a complex and multifaceted phenomenon with multiple causes and effects, occurring as it takes on various forms and functions in differing context.

Corruption define as an illegitimate exchange of resources involving the use or abuse of public or collective responsibility for private ends ( gains, benefits, profits, or privileges).

In narrow sense corruption involves a bureaucratic behavior that deviates from the norm or violates rules specified by the given context and is motivated by private gains that can be accrued from the public role.

Kinds of Corruption bribery, fraud, extortion, favoritism

6.2 Corruption Practices and Properties Bribery include:

1. Kickbacks2. Red envelopes3. gratuities4. Baksheesh5. grease money6. Facilitation payment7. Expediting fees

Fraud Includes:• Trickery• swindle• DeceitExtortion involve corrupt transactions where money or other

resources are violently extracted by those who have the power to do so.

6.2 Corruption Practices and Properties

Nature of Corruption:

1. Corruption is context- based. 2. Corruption is norm- deviated.3. Corruption is Power- related.4. Corruption is virtually convert.5. Corruption is International.6. Corruption is ex post opportunistic.7. corruption is perceptual

6.3 Taxonomy of Corruption in International Business

MNCs engaging in corrupt activities differ in the intensity scale and hierarchalScale of corruption, resulting in varying organizational identities, which display Different levels of seriousness regarding the corruption involved.

The Intensity Scale of corruption – levels of seriousness concern with the multitude(quantity) as well as the magnitude (gravity) of the corrupt activities.

Hierarchal scale – concerns the number of hierarchal levels ( e.g. .. Group/team level, function/department level, division/subsidiary level, and corporate/head office level).

These two dimension jointly mirror the seriousness of organizational corruption.

Sick BulldogStructural Malfeasance

*Leveling**Participation

Mad FoxSystem Malfeasance

*Positioning**Control

Errant Rabbit*Bridging

** Acquiescence

Wild Puppy*Interpretation

** Selection


1. Mad Fox- High intensity and more hierarchies2. Errant Rabbit – Low intensities and few

Hierarchies3. Sick Bulldog- low intensity and more hierarchies4. wild puppy- high intensity and few hierarchies


Dimension

1. Mad Fox- is a metaphor for MNCs where a large number of managers and employees at many hierarchical levels or various subunits perform corrupt practices resulting in very serious illegality.

2. Errant Rabbit – metaphor for an MNC in which intensity and hierarchical scales of corruption are both very low, implying fewer instances of misconduct, narrower hierarchical involvement, and weaker plague from corruption metaphors.

3. Sick Bulldog – Metaphor for MNCs whose Corrupt activities are not intensive but are nonetheless the practice of executive, managers, or employees at many different levels.

4. Wild puppy – is a metaphor for an MNC in which

most corruption is narrowly concentrated at one or a few levels of the hierarchy. This characterized by large scale corrupt practices that are primarily performed by the employees for one or narrowed level of MNC.


6.4 Corruption and Organizational Environment

Organizational corruption is attributable to both corporate and environmental Factors in individual countries wherein an MNC conducts businesses. The impact of country dynamics – whether economic, political, legal, or cultural- on national – Level corruption has been rigorously studied.

Task environment pertain to the external resources, information or condition that may immediately affect goal setting and goal attainment.

Three Traits of Task Environment:

1. Oligopolistic intensity2. regulatory control3. institutional complexity

6.4.1 Task Environment Oligopolistic Intensity describes the extent to which a small group of firms in the Focal industry have dominant control and market power in the industry. If a corrupt MNC subsidiary is a member of this group, it will be motivated to continually bribe officials in power or collude with other members of this group.

Regulatory control is concerned with the extent to which government authorities Regulate and intervene in various industrial policies such as market access, capital Investment, technological standard, distribution channels, and environment protection which significantly impact business operation in a focal industry.

Structural uncertainty describes the extent to which an industries structural attributes such as demand and supply are violate and un predictable.

6.4.2 Institutional Environments

Institutional environments serve conditioning factors that either undercutOr entice organizational corruption. This study proposes that institutional Transparency, institutional fairness, and institutional complexity are important components of these environments.

Institutional requirements affect organizational arrangements through both Cognitive and normative mechanism.


The institutional may exert relatively stronger effect in the incidence of their Corrupt activities than the task environment mentioned above.

Institutional transparency describes the extent to which regulatory systems ( political, bureaucratic, industrial, and professional) are open, clear, and easy to understand in a particular country in which MNC unit invest and operates.


Institutional fairness describe the extent to which various regulatory treatment are impartial, just and non discriminatory to every business including foreign business within the institutional reach.

Institutional complexity describes the extent to which the institutional environment that an MNC or its units must relate to complicated and difficult to verify, analyze, comply, and cope with.Institutional requirement affect organizational arrangement through cognitive and normative mechanism.

Institutional transparency describe the extent to which regulatory system are open, clear, and easy to understand in a particular country in which an MNC unit invest and operate.



Institutional fairness describes the extent to which various regulatory treatments are impartial , just and nondiscriminatory to every business, including foreign business, with in institutional reach.

6.5 Corruption and Organizational BehaviorThis emphasizes an MNCs Malfeasant behavior in its corrupt practices , attempts to use typology to elucidate which deviant behaviors will be used by organization with differing metaphors to align with the above task and institutional environments

Mad Fox Metaphor is accompanied with system malfeasance, a n errant Rabbit with Procedural Malfeasance, a wild puppy with categorical malfeasance, a sick bulldog with structural malfeasance.

6.5.1 System Malfeasance It exist when entire organizational system is contaminated with corrupt acts And corporate illegalities.

The mad fox metaphor applies well here because it involves system wise fraud characterized by a great magnitude of corrupt activities carried out by many hierarchies.

Corresponding to system malfeasance, a mad fox metaphor emphasized positioning to align with uncertainty, regulatory control, and oligopolistic intensity and focus to align on control with institutional opaqueness, injustice, and complexity.

6.5.2 procedural Malfeasance

Procedural malfeasance exist in the errant rabbit metaphor whose formalized procedures on business ethics are not strictly by some employees at one or few level or in one few subunits, resulting in a low scale and a narrow scope of illicit acts. Bridging to figure with task environment and use acquiescence to figure with institutional environments.

6.5.3 Categorical Malfeasance

Categorical Malfeasance exist in a wild puppy metaphor in which many corrupt practices are concentrated in one or few categorical levels, categorical units, or categorical location .

Categorical malfeasance is further revealed in the way a wild puppy metaphor deals with its and institutional environments.

Interpretation to deal with it task environments and use selection to deal with Institutional environments.

6.5.4 Structural MalfeasanceStructural malfeasance exist in sick bulldog metaphor where corruptions acts are structural in nature and most levels of the hierarchy, if not all, are involved, despite the fact that the latter are small scale in terms of quantity and gravity.

A sick bulldog may focus on leveling to align with task environment and on pacification to align with institutional environments.

Leveling is a tactic that seeks to smooth the impact of the task environment fluctuations on business operations.

6.6 Corruption and Organizational ConsequencesBecause corruption must be hidden from public, transaction cost arising from corruption can be significantly higher than those incurred for legal exchanges.

A short –term economic perspective , one may argue that corruption can help reduce cost of a specific transaction from increased institutional privileges and reduce regulatory barriers.

One can always find exceptional or historical cases to counter- argue the above the above premise. That is some firms may achieve some short run as well as long run net financial gains.

6.6.1 Evolutionary HazardAs an evolutionary hazard in the long term, corruption obstruct firm growthAnd business development through four interrelated channels namely:RiskEffectPunishment effectimage effectCost effect

• The degree of risk is a function of the bureaucratic corruptors willingness, Power, position, experience and network.

• Second, when a criminal fraud of corruption for an organizational purposeIs found, both the individual and the MNC will be punished legally, institutionallyAnd disciplinary.

6.6 Corruption and Organizational Consequences

Third, the image effect mainly lies in the stereotypical loss that either increases Cost or reduces the income stream for the company. Lastly, all transaction entailing some element of corruption inevitably involve financial cost.

6.6.2 Strategic Impediment

Corruption s a strategic impediment is mainly manifested in resourceMisallocation, capability-building deterrence, and lack of confidence and predictability.

In a competitive environment, firm growth depends on its dynamic capabilities such as organizational learning, knowledge upgrading, continuous innovation, and I innovative corporate control.

Lack of predictability and confidence always accompanies corrupt deals, which in turn impede business development.

6.6.3 Competitive Disadvantage

Corruption is a competitive disadvantage is reflected by dishonesty and untrustworthiness which can hurt a firms competitive position in the market. The elicit nature of corruption mirrors organizational untrustworthiness. Adherence to the law is a prerequisite element for corporate reputation and trustworthiness.

The hazard of untrustworthiness arising from corrupt acts goes further. Trustworthiness is particularly important in facilitating implicit long lasting Contractual ties to employees, suppliers, and costumers.

6.6.4 Organizational Deficiency

Corruption is often the product of mismanagement. It violates business ethics and length business principles. Since top managers are more or less involved with Corrupt activities, corruption implies problematic organizational leadership and ill business morality.

March and Simon (1958) –states that most members within MNC are motivated indirectly by organizational objectives and directly by the incentive structure.

6.6.4 Organizational Deficiency

Four Fold organizational consequences of Corruption:

1. Evolutionary hazards, including risk effect, image effect, punishment effect, and cost effect;

2. Strategic impediments, including resource misallocation, capability- building deterrence, and lack of predictability and confidence.

3. competitive disadvantage, including dishonesty, untrustworthiness, and inefficiency is repeated ties;

4. Organizational deficiency, including problematic leadership, ill business morality, and mismanagement.

6.7 Corruption and Organizational Architecture

Corruption id durable and adaptable virus. Combating corruption requires a set of measures at various levels including addressing poverty and inequity enacting and enforcing anti-corruption law, and reforming dysfunctional Government .

Institutional theorist hold that pressures for legitimacy may reside in explicit Demands of task and institutional environments or in fact that certain forms of organizational commitment and action taken for granted.

6.7.1 Corporate control

Corporate Culture set the moral tone for an MNC.

Corporate Culture is defined as statement, vision, custom, slogans, values, Role models, and social rituals that are unique to and used by a focal MNC to resist corrupt practices.

6.7.2 Organizational Structure

Misconduct can be detected and corrected through organizational structure since this structure establishes the content of the jobs, specifies monitoring Process, and regulates ways to fulfill and responsibilities.

Transparency throughout the entire organizational structure is a necessary Condition for reducing the potential for illicit dealings.

Record keeping and reporting are procedures that the MNC can use to document key aspects of its compliance effort and to monitor its program For effectiveness.Structural mechanism that enforce Anti- corruption programs and policiesMust be in play.

6.7.3 Compliance System

The compliance system that suppresses corruption consist of conduct codes and Ethics program, together constituting an effective organizational control that minimizes corporate illegalities.

6.7.3.2 Compliance ProgramCompliance Program – training, due diligence, and formalized procedures Ostensibly bring the behavior of MNC members into conformity with a shared Ethical standard.

They constitute an organizational control system that encourages shared ethical Aspiration and compliance with rules.

More specific legal and ethical training may be necessary for employees in high-Risk and high corruptive areas.

Undertaking due diligence is vital for ensuring that anti corruption processes areEfficient and effective.

6.7.3.1 Conduct Code

This system begins with written commitment in areas of business ethics that are relevant to the firms activities – that is code of corporate conduct that provides a set of legal and ethical guidelines for employees to follow.

6.7.3.2 Compliance Program

The MNC may adopt prompt – impacting approaches and take specializedStopgap measures to quickly correct wrong doing . These measures include:

1. Special training and educational seminars on resisting corruption for all employees in the area.

2. More specific legal and ethical training for senior managers in high risk area

Or functions such as sales, promotion, procurement, public relation, and international business.

3. Change or rotation of senior manager in the area if these manager were involved in major illegalities.

6.7.3.2 Compliance Program

4. Enhancement of internal auditing, recording, and control over various activities conducted by the focal unit that are especially prone to corruption.

5. Enhancement of internal auditing, recording, and control over various activities conducted by the focal unit that are especially prone to corruption.

6. Stringent disciplinary punishment for failure by anyone in the area to meet ethical expectations.

7. Requiring chief managers or directors in the area to bear or share responsibility for anti- corruption activities and tying their performance appraisal

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